Discussing home builder confidence, home buyer demand and the supply of homes for sale, interesting information on incomes, income inequality and poverty, Fannie says housing is a wet blanket plus more
Home Builder Confidence Unchanged
Builder confidence in the market for newly-built single-family homes remained unchanged at a solid 67 reading in September on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
NAHB Chief Economist Robert Dietz said:
A growing economy and rising incomes combined with increasing household formations should boost demand for new single-family homes moving forward. However, housing affordability is becoming a challenge, as builders face overly burdensome regulations and rising material costs exacerbated by an escalating trade skirmish. Interest rates are also forecasted to keep rising
Will we see more demand as Dietz says? We can only hope we will but more importantly, will we see more affordable homes being built?
Home builders feeling confident should mean they plan on building more homes. Which means we could see even more new homes hitting the market in the coming months…
Today, the number of homes for sale is too low in many area/price ranges compared to the demand. However, there are signs that demand is falling…
One sign is the number of pending home sales falling according to NAR. Lawrence Yun, NAR’s Chief Economist says inadequate supply and rising home prices are the reason for the decrease in home sales:
The reason sales are falling off last year’s pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it.
Cooling demand makes us wonder if we are going to see…
Gasp! A Buyer’s Market?
From First American:
Last month, we noted in our latest Real House Price Index (RHPI) report that house price appreciation may be slowing. According to our RHPI, 21 cities experienced a monthly decline in their real, consumer house-buying power-adjusted price level. One reason for the price appreciation slowdown is that 21 of the 50 largest cities in the U.S. experienced an increase in the number of houses on the market in July compared with a year ago, according to realtor.com data.
Well First American points out that the number of homes for sale has increased a tiny bit. But they also say that inventory is only increasing among higher end homes nationally.
Which is not the type of homes with the strongest demand…
First American also reported that home buyer demand may be decreasing due to buyers becoming frustrated with the lack of inventory. More supply and less demand could mean we are starting to see the housing market shift to a buyer’s market.
Incomes, Income Inequality and Poverty Levels
The Census Bureau just released some interesting statistics that give us some insight into the real state of the economy:
- Real median household income in the United States increased 2.6 percent between 2016 and 2017.
- The 2017 median household income was the highest measured by the ACS since it was fully implemented
- Income inequality, as measured by the Gini index, was essentially unchanged from 2016 to 2017.
- Between 2016 and 2017, poverty rates declined in 20 states and the District of Columbia.
- The poverty rate has decreased for three consecutive years.
Check out the map showing household incomes in each state:
As you can see, South Carolina is in the middle but this is only looking at incomes and not any of the other advantages we enjoy in SC.
One interesting tidbit is that the increase in household incomes could be due to a change in the questions used in the survey according to the Census Bureau. When they adjusted for the changes in questions, it appears that incomes would not be statistically different from 2007 or 1999.
They did not explain why they changed the questions or adjust official publications and table packages to reflect the changes due to different questions. Which makes it harder to say with 100% certainty how most Americans are really doing…
That being said, check out this chart showing annual household incomes in 2017 dollars:
The chart does look encouraging but considering the change in questions, how accurate is the chart?
Housing Remains a Wet Blanket
Highlights from Fannie Mae’s September 2018 Economic and Housing Outlook:
The second quarter’s robust economic growth of 4.2 percent annualized will likely mark the expansion’s final peak. Incoming data are consistent with a growth slowdown to 3.2 percent annualized in the third quarter, the same pace projected in our August forecast. We expect consumer spending and business fixed investment growth to moderate but remain at a solid pace, and we believe that trade will drag on the economy after adding substantially to growth last quarter due to the frontloading of exports ahead of tariffs implemented in July.
We also expect that residential investment will continue to detach from consumer and other business demand, declining slightly this quarter and marking the third consecutive quarter in which housing subtracts from growth, the first such occurrence of this expansion.
While the overall economy continues to grow at a solid pace, the housing sector has been soft across the board.
One positive development is that home builders appear to be responding to strong first-time buyer demand by constructing smaller homes.
New home sales declined in July for the third time in four months to the slowest pace since last October.
Total existing home sales fared even worse than new sales, falling in July for the fourth consecutive month to the worst showing since February 2016. While the for-sale inventory of existing homes finally ended three years of annual declines, inventories are still at historic lows. Leading indicators suggest no meaningful improvement in the near term, as pending home sales fell in July for the third time in four months, and purchase mortgage applications dropped in August for the second straight month.
Home prices have held up well. Continued strong price appreciation that has outpaced income growth, along with a rise in mortgage rates of nearly 60 basis points since the start of the year, have weighed on home purchase affordability and depressed home buying sentiment.
Fannie also made predictions for how 2018 will turn out and what 2019 will hold for housing:
- Single-family housing starts will increase YoY 5.8% in 2018 and 7.2% in 2019
- Total homes sales (new and existing) will fall YoY 0.1% in 2018 and increase 1.8% in 2019
- Fannie is expecting both new and existing home prices to continue to increase in 2018 and 2019
- Fannie is says mortgage rates will continue to rise in 2018 and 2019
The report from Fannie may not be what you want to hear but could be what you NEED to hear. Remember that Fannie is talking about the entire country so you will need to consult with a local Realtor to determine what is happening in your area.
Unless we see a HUGE increase in the supply of homes for sale, decreasing demand may NOT cause home prices to fall ( unless the economy hits the skids ). It appears that both home prices and mortgage rates will continue to increase which will also hurt demand.
Eventually, low demand could cause home price growth to slow. At this point, I do not see home prices falling UNLESS the economy turns so bad it causes home buyer demand to become virtually nonexistent.
An economic downturn could cause falling home prices. And falling home prices COULD cause another mortgage crisis according to Wolf Street:
There can be no mortgage crisis unless home prices decline enough in some markets. And given how inflated home prices are in many markets, and that mortgage rates are now climbing, any reversion toward the mean of home prices in those markets would cause the delinquency rate to do a beautiful “déjà-vu all over again,” so to speak. That low national delinquency rate these days, often touted as a sign of low risk in the housing market, has zero meaning as an indicator of risk for the most vulnerable households when the prices of their homes begin to drop.
As of now, DO NOT PANIC. No one knows what the future holds and we can only make educated decisions based on the facts. As always, if you have questions about real estate in the Anderson SC area, Contact Me!